Does Energy Consumption Respond to Price Shocks? Evidence from a Regression-Discontinuity Design
AbstractThis paper exploits unique features of a recently introduced tariff schedule for natural gas in Buenos Aires to estimate the short-run impact of price shocks on residential energy utilization. The schedule induces a non-linear and nonmonotonic relationship between households’ accumulated consumption and unit prices, thus generating an exogenous source of variation in perceived prices, which is exploited in a regression-discontinuity design. The estimates reveal that a price increase in the utility bill received by consumers causes a substantial and prompt decline in gas consumption. Hence they suggest that policy interventions via the price mechanism, such as price caps and subsidies, are powerful instruments to influence residential energy utilization patterns, even within a short time span.
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Bibliographic InfoPaper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4702.
Date of creation: Jan 2011
Date of revision:
Energy consumption; Elasticity of demand; Regulation of public utilities; Regression discontinuity design; Public policy;
Find related papers by JEL classification:
- L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
- Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-05 (All new papers)
- NEP-ENE-2011-02-05 (Energy Economics)
- NEP-REG-2011-02-05 (Regulation)
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